Risk Management Reports

September, 2004

Volume 31, No. 9

A Letter to My Readers

It’s been three years since September 11, 2001, forever
enshrined as 9/11, and six months since March 11, 2004, the train bombing
in Madrid. After these events, nothing is quite the same. Those of us
who deal daily with the management of risk face new uncertainties and
the need to construct new responses. This is a personal commentary, my
observations on how we have changed post 9/11. As more than half of my
readers live outside the United States, it is also a candid appraisal
of the actions of this country.

9/11 and its subsequent events crushed the euphoria surrounding the demise
of communism. In our innocence we thought that we had embarked on a long
period of peace, freedom and economic advancement for everyone, one in
which the overwhelming military power of one country would support this
advance and throttle the petty ambitions of minor tyrants. That innocence
is gone, replaced by two cancerous growths that increase uncertainty and
threaten global stability. One is a mounting antipathy to the United States
and everything it stands for. The other is a loss of trust in institutions,
public and private. How the world reacts to these two challenges will
dictate the course of history in the next two to three decades.

First, the growing antipathy to the US and its culture is based on both
recent actions and lack of action. This country is accused of acting preemptively
and unilaterally, without global support, and acting precipitously, without
adequate information or intelligence. We are also accused of failing to
act where conditions otherwise warrant action. These are fair accusations
but they must be considered in the circumstances of the times. Leaders,
like executives and risk managers, must make decisions under uncertainty,
collecting available data but always being pressed by time and conditions
to act. Did Al Qaeda have further acts of terrorism in the works after
9/11? Would others extremists follow suit, perhaps with weapons far more
damaging than four aircraft? Would others be emboldened by the Al Qaeda
success to attempt similar acts of terrorism? In its prompt and powerful
responses in both Afghanistan and Iraq, the US crushed two obnoxious regimes,
but, in so doing, it also risked raising the specter of an arrogant and
abrasive super-power acting arbitrarily anywhere in the world where it
thought that its interests were being challenged, and, in an ironic twist,
it probably increased the animosity of those prone to terrorist acts.

At the same time as the world recoiled at what it believed to be an excessive
use of power, it began to find flaws in the economics, culture and politics
of the US. The US, they pointed out, is the home of excess. It compensates
private-sector executives excessively, far beyond levels elsewhere in
the world. It tolerates an excessive indulgence in drugs. While the US
tries, on one hand, to exterminate the production of heroin, cocaine and
marijuana at home and abroad, it permits and encourages unprecedented
pill-taking for every conceivable symptom or illness, real or imagined.
It is a drug-saturated society. Its citizens also eat to excess, making
obesity the country’s primary physical impairment. It indulges in
excessive litigation, permitting an unrestrained plaintiffs’ bar
to obtain individual and class action judgments far beyond the wildest
imagination or rational compensation. And, yes, it is also justifiably
accused of entertainment characterized by excessive ugliness, distortion
and commercialism. Is there anything that isn’t for sale?

The economic excess of the US puts all the others to shame. When 9/11
should have forced fiscal prudence in light of the long-terms costs of
battling terrorism, the US plunged into economic gluttony: Congress cut
taxes, increased spending and postponed the inevitable day of reckoning
from its unfunded liabilities for social security and medical benefits.
From a fiscal surplus at the end of the last century, it now has a skyrocketing
deficit. It continues to try and finance this insatiable greed by asking
investors abroad to buy its debt. It is a country beset by problems similar
to other developed nations — an aging population and radical terrorism
— but its reaction has, so far, been one exactly contrary to expert
economic opinion.

Should the US be judged only on the basis of this excess and on its recent
activities around the world? Isn’t it time to consider the native
reservoir of prudence, caution and common sense that have characterized
this nation for more than two centuries? Shouldn’t we consider the
freedoms of speech, political activism, and religion, and the availability
of economic opportunity, and its culture of innovation, all of which have
blessed its inhabitants for so long? Shouldn’t we also consider
its uncommon history of recoiling from excess when its people realize
the costs and effects?

Yes, the recent criticism is warranted in many areas but this country
is listening. I remain optimistic that we can and will change the current
run of excess.

The second outgrowth of 9/11 is more serious, as it reflects a global
problem: the loss of trust in institutions and the erosion of credibility
in those who lead.

When I hear a politician or business executive pontificating, I immediately
recoil at the words “the fact of the matter is . . . .” This
is a preface to mendacity, to a shovel full of slanted if not incorrect
information. The bursting of the stock market bubble and the aftermath
of 9/11 jointly demolished our trust in elected officials, in election
processes, in the word of leaders, in the published reports of corporations
and their auditors, and in our long-standing faith in the efficacy of
markets. Lack of candor and the inability to apologize, to admit fault,
are the prevailing winds. Politicians and executives are afraid to admit
error for fear of being ousted from office. Both are driven by fear of
their constituents. Peter Bernstein pointed out last month, “Nor
will the data (quarterly corporate earnings numbers) ever attain credibility
as long as investors require CEOs to perform high-wire pirouettes every
three months in an effort to make the earnings numbers come out where investors hope they will be, and to dream up persuasive
excuses for shortfalls.” (Economics and Portfolio Strategy, August
1, 2004) Are we afraid to face the truth?

A byproduct of this slippage in trust and credibility is the growing
erosion in the pluralism and secularism that have been so identified with the United
States for many years. The US is beginning to castigate anyone who does
not match the profile of a “safe” citizen. It is starting
to rethink its century-old open borders for immigration. Some are arguing
that English, and English alone, should be the national language. As we
grow to distrust our neighbors, leaders and institutions, some revert
to those who promise all the answers, substituting dogma for doubt and
difficult answers. As Philip Gourevitch of The New York Times wrote on
July 20, “dogma is impervious to reality.” It begins to breed
a new and disturbing messianic group belief of our own righteousness,
an ironic mirror to the equally antithetical belief of those we now oppose.

The growing antipathy to all things American and the loss of trust in
the “system” are two outgrowths of the 9/11 disaster and its
subsequent reactions. They will, I suspect, be with us for some time to
come, but I believe they are temporary. The cures for these cancers continue
to be honesty, candor and expanded communication with those who offer
criticism. These three traits are, or should be, the natural tools of
those who purport to manage risk. Why shouldn’t we take the lead
in this period of global uncertainty?

-------

After writing these words, my editor, cook and constant companion noted
sarcastically “Your soapbox is high enough to do Olympic back-flips.
Were you robbed of a medal at Athens?” She brought me thumping to
the ground!

Our concern with history . . . is a concern with preformed images
already imprinted on our brains, images at which we keep staring
while the truth lies elsewhere, away from it all, somewhere as yet
undiscovered.